Consumer confidence collapse

Step by step

1. 1

   Start at equilibriumequilibriumThe point where opposing forces balance, quantity supplied equals quantity demanded, so there's no pressure for price to change..

2. 2

   A shock (pandemic, crisis, mass layoffs news) makes households fearful about the future.

3. 3

   Households cut spending and raise precautionary saving at every price level. AD shifts sharply left.

4. 4

   New equilibriumequilibriumThe point where opposing forces balance, quantity supplied equals quantity demanded, so there's no pressure for price to change.: output falls well below potential, a demand-driven recession.

Where this shows up

Examiners ask this as: confidence collapse, consumer sentiment falls, pandemic demand shock, households stop spending, fear of recession.